Newnations Prescriptions

On July 1, Croatia will become the 28th member state of the European Union. This has been heralded as considerable progress for a nation once mired in conflict. In recent months one potential stumbling block, in the form of a dispute with Slovenia, which had threatened to derail the entire process, looks to be on the point on the resolution, a fact which promoted Štefan Füle, the European commissioner for enlargement, to call “a good deal for both countries and a good deal for enlargement”. However, economic woes are looming over the nation, suffering badly from the Eurozone crisis and facing a raft of austerity measures to counteract negative trends.

Whilst Croatia has long been poised to join the EU, a historic dispute with Slovenia did threaten to challenge its prospects. This issue related to the Slovenia based Ljubljanska Banka which dissolved in the 90s conflict, but re-formed subsequently. When it did, a number of lawsuits were filed from former depositors in both Bosnia and Croatia. Croatia was seeking €270 million for those who lost out when the bank liquidated. Slovenia meanwhile argued that Croatia’s demand was not in keeping with the agreed principles for solving legacy issues from the Yugoslav era. A new agreement signed on March 11 2013, asserted that Croatia would cease legal proceedings and would permit Ljubljanska Banka’s successor – Nova Ljubljanska Banka – to operate in Croatia. “This solves the last open issue between our two states that stood in the way of the ratification of Croatia’s EU accession treaty,” Slovenian Prime Minister Janez Jansa said. Croatia’s accession will have a number of benefits such as increasing funding to support infrastructure developments and stimulating growth.

Not everyone has welcomed Croatia’s accession, however. Many voices in Europe have expressed continuing concerns about corruption. The state has certainly done a great deal to alleviate concerns about graft, namely by bringing to justice those implicated in scandals, no matter how high-ranking they may be. In November 2012, former Prime Minister Ivo Sanader was sentenced to ten years in prison for taking bribes from two foreign companies, Hungary’s energy group MOL and Austrian Hypo Alpe Adria Bank. “This verdict will certainly be welcomed in the EU, and it sets a benchmark for all EU candidate countries,” said Drazen Rajkovic, author of the book “How Sanader Stole Croatia”. In the same month, it was reported that Croatia’s anti-corruption police had arrested the management of a local pharmaceutical firm and a number of doctors on suspicion of bribery over the prescription of medicines. USKOK, the state’s anti-graft agency, said police were investigating 26 employees of a pharmaceutical company, 49 doctors and one pharmacist, all suspected of taking bribes. Health Minister Rajko Ostojic was not reluctant to reveal the extent of the probe, telling the media that as many as 350 doctors were in fact under suspicion of taking bribes. In March of this year, Tourism Minister Veljko Ostojic became the fourth minister in the centre-left coalition to step down since it came to power in December 2011 after it was alleged that his family had profited from the sale of land, thanks to a planning law he ushered in in the Adriatic peninsula of Istria, where his party, the IDS, is dominant. The minister maintains that the accusations were lies, stating, “I resign due to the pressure on me in recent days which are based on unfounded accusations and lies. Such a negative campaign against me makes it impossible to carry on working in a professional manner.” The affair certainly did little to assure critics of the regime that corruption has been entirely eradicated in the ruling elite. In a positive sign, however, Croatia has announced plans to introduce a property tax which will replace communal taxes, in an attempt to reduce opportunities for tax avoidance.

Many of those quick to highlight Croatia’s corruption problems are Western European enlargement sceptics. A recent report by Global Financial Integrity, a Washington-based organisation, highlighted some worrying statistics. The report, released in December, found that crime, corruption and tax evasion cost Croatia around €11.3 billion from 2001 to 2010. During the same period, the state received €1.5 billion in assistance from EU taxpayers, leaving the report’s readers curious as to what extent of this aid was siphoned into the pockets of the political class. Some have suggested that future EU contributions (due to reach €10 billion in during 2014-2020) should be overseen more strictly, if not withheld altogether. This would certainly be dispiriting for Zagreb. A problem noted in recent years is a drop in foreign investment due to concerns about excessive bureaucracy and graft. There are also broader concerns from EU lawmakers about Croatia’s organised crime network. In a debate in the House of Commons in November of last year, a number of MPs from across the political spectrum raised concerns about human trafficking (which is prevalent across the Balkans). Labour party MP Michael Connarty wondered “whether there is a prospect of the mafia – for want of a better word – of the Balkan states using Croatia as a gateway for people trafficking … Are the police in Croatia up to dealing with such an influx?” Deputy Foreign Minister David Liddington was, however, attempted to calm fears about the matter, arguing that Croatia is not expected to file an application to join Schengen, the EU’s passport-free zone, until 2015, and that the UK will impose limits on Croatian workers who want to come to Britain for “at least” the first two years of its EU membership.

Economically, the country is facing uncertain times and integration into the EU should help improve investor confidence. Forecasters say Croatia is likely to suffer a fourth recession year in a row in 2012. A recent estimate suggested that GDP had shrunk 2.0% last year leaving gloomy projections for the coming year. According to Hypo Alpe Adria bank, “deepening GDP contraction largely owed to weaker household expenditure, with rising unemployment, real disposable income decline, retail deleveraging and utility price hikes” are the key reasons for the downward trajectory. The government hopes to achieve growth of 1.7% this year by stimulating both public and private sector investment. The IMF has offered a three-pronged strategy for achieving economic health; “structural reform (particularly of labour legislation), continued fiscal consolidation, and careful calibrating of the financial sector to promote both stability and a recovery in lending”. The financial uncertainty of the Eurozone as a whole has of course contributed to the potential for long-term financial woes. Part of the government’s plan to improve the country’s financial climate is to slash public sector spending. This, needless to say, has not been well received by Croatia’s citizens. In November of last year the country saw its first major protest against austerity measures when teachers and nurses staged a one-day strike in protest against cuts to bonuses.

Aside from the prospect of European Union membership, Croatia has had other reasons to celebrate of late. In November, the convictions against former General Ante Gotovina and Mladen Markac for their part in the Balkans wars of the 1990s were overturned in the Hague. Appeals judges found that the original trial judges had wrongly deemed the artillery attacks ordered by Gotovina and Markac unlawful. Additionally, they ruled that there was no evidence of systematic plans to forcibly deport Serb civilians from the Krajina region of Croatia. The verdict is of extreme psychological import for Croatia. Prior to this point, Operation Storm – the military offensive in August 1995 that ended four years of war with the Serbs and gave Croatia victory and independence – had been termed a war crime. The “stigma Hrvatska” (Croatian stigma) is the term used to convey the idea that the country had gained its independence by committing war crimes, a highly problematic notion for the national psyche. The overturning of the verdict on the generals has changed all of this and their instant release even surpassed the expectations of Croatia’s politicians, who had imagined a commuting of their sentence at best. It was not a unanimous verdict however, with two of five judges disagreeing. Needless to say the verdict has not been met with unanimous approval. Serbia’s politicians are outraged and have used the news to justify ongoing claims that the ICTY (The International Court for the Former Yugoslavia) is biased against the Serbs. Russia has weighed in in support of Serbia as well.

Croatia’s conflicted history has also resurfaced recently in a report in the New York Times that suggested Saudi Arabia had made “a large purchase of infantry weapons from Croatia and quietly funnelled them to anti-government fighters in Syria”. This, the newspaper reported, has been ongoing since December of last year. The weapons included armour-piercing grenades, rocket launchers and recoilless cannons. These arms had allegedly been flown by Jordanian cargo planes from Zagreb airport. Analysts first began to take note of the Yugoslav-made arms when they began to be seen on YouTube videos posted by rebels in the Syrian conflict. Shipping arms to Syrian rebels would be a violation on Croatia’s part of its own decision to join the EU sanctions against Syria, which outlaw the sale of weapons to any side in the conflict in the Middle Eastern country. The reports of the sales have been denied by the government. As a result Croatia will pull its soldiers out of the U.N. peace force in the Golan Heights as a precautionary step. The United Nations has already warned that the conflict in Syria could spill over into the sensitive Golan region. Croatian politicians have decided that the soldiers could be at risk due to the news reports.

Croatia continues to make positive progress in aligning itself with peaceful, modern democratic standards, although the spectre of war seems is never far behind. For the moment the economy looks like the major battle the state will have to face in 2013. Enlargement sceptics may be nervous about the country’s accession, but the country has shown a robust commitment to improving its economic, social and political prospects.